Fiscal cliff warning sends stock market lower

NEW YORK (AP) — Traders came back to work after the Thanksgiving weekend to the same old worries about the fiscal cliff and the European debt crisis.

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Posted Nov. 26, 2012 at 12:11 PM
Updated Nov 26, 2012 at 12:12 PM

Posted Nov. 26, 2012 at 12:11 PM
Updated Nov 26, 2012 at 12:12 PM

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NEW YORK (AP) — Traders came back to work after the Thanksgiving weekend to the same old worries about the fiscal cliff and the European debt crisis.

The stock market was down throughout the day Monday as Washington lawmakers and business groups bickered over the proper rates for taxing and spending. In Europe, leaders tried to cobble together another bailout loan for Greece.

The Dow Jones industrial average was down 80 points at 12,930 at mid-afternoon. The Standard & Poor's 500 was down eight at 1,401. The Nasdaq composite index was the only major index to rise, briefly flitting above its previous closing price for a few times in the afternoon. It was down 1 point to 2,966 shortly after 2 p.m.

Overall it was a quiet day, with no major economic reports due in the U.S. and no major companies scheduled to make big announcements.

"The themes seem about as recycled as Thanksgiving turkey," David Kelly, chief global strategist at JPMorgan Funds, wrote in a note to clients. He expected a better read on the economy later this week, with reports on consumer confidence on Tuesday and unemployment claims and third-quarter economic growth on Thursday.

Scott Carmack, co-portfolio manager at Leader Capital in Portland, Ore., said the decline was all but inevitable given how the market soared last week. It was one of the best weeks for the Dow all year and followed four weeks of decline. Positive economic news from Germany and China, as well as initial reports Friday that holiday shopping had gotten off to a strong start, helped push the market higher.

That made Monday a good day to cash out on last week's gains, Carmack said, especially because traders aren't sure how the fiscal cliff will affect the market for the rest of the year.

"Monday is a good day to take profits," Carmack said. "No one was in on Friday, so they're doing it Monday."

It's still difficult to gauge how this holiday shopping season will wind up for retailers, who rely on it heavily. The National Retail Federation reported that 247 million shoppers visited stores and shopping websites during the long Thanksgiving weekend, up 9 percent from a year ago. They spent an average of $423, up 6 percent.

Some worry that the momentum won't last. Retailers like Macy's, Target and Saks were down. Macy's fell $1.92 to $39.81. Saks was down 29 cents to $10.23. Abercrombie & Fitch was an exception, rising 23 cents to $44.63.

The fiscal cliff cast a disconcerting pall. That's when both higher taxes and cuts to government programs, like unemployment benefits and Social Security, will kick in at the end of the year unless Congress and the White House work out a compromise.

A government report released Monday warned that a sudden increase in taxes would crimp the spending of middle class families next year, and some analysts wondered if families might pre-emptively curb spending before the year is over.

The report, by President Barack Obama's National Economic Council and his Council of Economic Advisers, estimated that a married couple earning between $50,000 and $85,000 with two children would see a $2,200 increase in their taxes.

To be sure, the fiscal cliff fighting could be mostly grandstanding. Lawmakers often spar over budget issues until the 11th hour, then work out a compromise at the last moment.

In Europe, leaders of European Union countries engaged in their own battle, trying to hammer out a deal to lend more money to debt-crippled Greece. But ailments in Greece no longer sicken the U.S. markets as readily as they used to, as many analysts have already baked European problems into their market estimates.

"Most of these uncertainties have been with us for quite some time," Sam Stovall, chief equity strategist at S&P Capital IQ, wrote in a note Monday, "and are now regarded by many as annoyances to resolve rather than obstacles to fear."

In other trading:

—McGraw-Hill announced it would sell its education unit to a private equity firm. The company's stock rose 52 cents to $52.20.

—Facebook stock jumped $1.92 to $25.92 after a Bernstein analyst upgraded his rating of the company, predicting it will beat revenue expectations for the near future.